Quick Facts

Albania’s economic freedom score is 65.7, making its economy the 63rd freest in the 2015 Index. Its overall score has decreased by 1.2 points, with notable declines in business freedom, fiscal freedom, and investment freedom. Albania is ranked 29th among the 43 countries in the Europe region, and its overall score is above the world average.

Over the past five years, Albania has advanced its economic freedom score by 1.7 points. With score increases in six of the 10 economic freedoms, including trade freedom and the management of public spending, it has fluctuated within the category of “moderately free.” However, in the 2015 Index, the upward trend of economic freedom in Albania has reversed.

The Albanian economy is mostly in private hands, but the state continues to control key enterprises, particularly in the energy sector. Although foreign direct investment has increased in recent years, overall levels still remain among the lowest in the region. Deeper structural reforms to diversify the economy and improve labor market flexibility remain critical for more broad-based economic development. Property rights and freedom from corruption are weak, and government interference and regulatory control continue to limit dynamic investment and overall economic efficiency.

Background

Socialist Edi Rama was elected prime minister in June 2013, defeating conservative eight-year incumbent Sali Berisha. Rama campaigned on a promise to secure European Union candidacy status within a year. Albania achieved full membership in NATO in April 2009 and continues to make a small contribution to the NATO-led mission in Afghanistan. Albania has received significant foreign direct investment to fund development of its oil and natural gas resources. Its transportation and energy infrastructure remain poor by European standards. Corruption is an impediment to growth. The economy is dominated by agriculture, which employs about half of the workforce, and services, including tourism.

In 2014, Albania became an EU candidate country on the condition that it make further progress in reforming the judiciary and law enforcement to combat deeply rooted corruption and organized crime, especially human trafficking, fraudulent documents, and money laundering. Judges sometimes face threats and physical violence. Protection of intellectual and real property rights is weak, particularly for land tenure.

The government has raised its top marginal individual and corporate income tax rates. The top individual income tax rate is now 23 percent, and the top corporate tax rate is 15 percent. Overall tax receipts remain stagnant at around 23 percent of gross domestic product. Public expenditures amount to 28.2 percent of the domestic economy, and public debt is equal to around 70 percent of domestic income.

Despite recent reforms, the inefficient business environment still impedes broader economic development. On average, launching a business requires five procedures, but obtaining necessary permits can take over 200 days. In the absence of a well-functioning labor market, informal labor activity persists. Price controls and government subsidies distort domestic prices for electricity, water, agricultural products, and railroad transportation.

Albania has a 1.1 percent average tariff rate, and there are few non-tariff barriers. Promotion of foreign investment is a stated goal, but there are limits on foreign ownership of agricultural land. Banks account for over 90 percent of total financial-sector assets. Although the banking system remains relatively well capitalized, nonperforming loans have risen to over 20 percent of all loans.